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India’s Economic Expansion Outpaces Rival China


NEW DELHI—India’s economic expansion accelerated to the fastest pace in nearly two years, pulling further ahead of rival China in the race to be the world’s fastest-growing economy, as the effects fade from the government’s crackdown on cash and adoption of a new tax.


Gross domestic product in Asia’s third-largest economy grew 7.7% in the three months through March compared with a year earlier, according to government data issued Thursday. That was better than economists’ prediction of 7.4% and stronger than the 7% expansion in the preceding quarter.
India has now held the position as the world’s fastest-growing big economy for the second quarter in a row, a title that China had wrested from it about a year ago. China’s economy grew 6.8% in the past two quarters.


During the full fiscal year, India’s economy grew 6.7%, which was slower than the previous year’s 7.1% expansion.India’s economy had been disrupted by Prime Minister Narenda Modi’s sudden move to ban India’s high-value currency notes—known as demonetization—and the bumpy rollout of a new nationwide value-added tax.


“It’s a healthy number and confirms that the economy is in a recovery mode,” said Anubhuti Sahay, head of South Asia economic research at Standard Chartered Bank. “Growth should move up to 7.2% this fiscal year, bringing us back to the pre-demonetization levels.”The data in India showed broad-based strengthening. The growth rate in construction nearly doubled to 11.5%. Output of public administration and defense services also rose 13.3%, while manufacturing grew 9.1%.


Although the headline figures look impressive, much of the burden of driving the economy forward has been shouldered by demand. Private investments, essential to create new jobs, are lagging. Exports remain sluggish, and demand in the country’s rural areas hasn’t fully recovered amid heavy indebtness of farmers.As next year’s general elections near, pressure is growing on Mr. Modi to get the economy firing on all cylinders. Criticism is mounting that not enough jobs are being generated for the more than 10 million Indians joining the workforce each year.


“While growth has accelerated, many voters, particularly in the rural community, aren’t feeling the benefits,” said Shailesh Kumar, director for Asia at Eurasia Group. But he added that Mr. Modi’s policies have helped bring down inflation, ensuring “support for him remains intact.”


GDP growth dipped to a three-year low early last year after Mr. Modi’s high-value currency ban, aimed at reining in corruption, hurt demand. A quick implementation of a national tax on goods and services in July left businesses struggling to understand its complicated rules.While these moves initially caused pain, the outlook has brightened as businesses gradually get accustomed to the new system.


V.K. Agarwal, who owns a power-equipment manufacturer, said he now has a wider choice of suppliers since the new rules have removed multiple state taxes that acted as hurdles to interstate trade. As a result, he is buying items from suppliers in Orissa and Chhattisgarh states, in addition to his home state of Uttar Pradesh, allowing him to negotiate better prices.
Further, the uniform tax across the country has eliminated the need for buyers to provide proof for claiming lower taxes applicable on business-to-business interstate sales.“Earlier, we used to suffer because the seller won’t bother giving us all the documents because he wasn’t affected. That caused a lot of difficulty at the time of assessment.



Those things will not happen now,” Mr. Agarwal said.However, threats to the South Asian economy have also grown lately with global oil prices rising sharply.
Mr. Modi benefited during much of his first four years in office from low oil prices, which allowed him to raise taxes. But with oil near 3.5-year highs, prices at retail fuel outlets have surged, stoking public anger and pressure on the government to slash taxes.


If Mr. Modi buckles, it could weaken the government’s fiscal health, slowing down everything from infrastructure investment to social spending and heightening the risk of India’s debt being downgraded, potentially driving away foreign investors.


“The recent run-up in inflation, in particular oil prices, has certainly started to pose some headwinds to unfettered growth. Current conditions don’t look conducive for India to reach the closer-to-9% growth levels it hopes to achieve,” said Vishnu Varathan, head of economics and strategy at Mizuho Bank.

“最近的通货膨胀,尤其是石油价格的上涨,肯定已经开始给不受约束的经济增长带来一些不利因素。”瑞穗银行经济与战略主管Vishnu Varathan表示:“目前的状况不利于印度实现其希望达到的接近9%的增长水平。”

Adding to the problems are the country’s banks, which have intensified scrutiny of borrowers after public outcry over the misuse of people’s money following disclosure of some big lending frauds at state-run banks.“Banks are looking at us as if we are all offenders,” said Ganesh Gupta, president of the Federation of Indian Export Organizations. “We are facing a difficult time.”